In 2014, Father sold land to Son for $50,000 cash and an installment note for $150,000 due in 2018. Father's basis was $100,000. In 2015, after paying $8,000 interest but nothing on the principal, Son sold the land for $300,000 cash. What gain, if any, must Father recognize in 2015?

Question

Quizplus · Accepted Answer

Father's gain on the sale of the land to Son in 2014 was $50,000 (the difference between the $100,000 basis and the $150,000 selling price). In 2015, Son sold the land for $300,000, which is $150,000 more than the installment note. Since Father's gain on the sale to Son was $50,000, he must recognize another $25,000 of gain in 2015 (half of the $50,000 increase in value).

Therefore, Father must recognize a total of $75,000 of gain in 2015.

In 2014, Father Sold Land to Son for $50,000 Cash